(a) Treatment as employees of domestic parent corporation
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(1) In general For purposes of applying this part with respect to a pension, profit-sharing, or stock bonus plan described in section 401(a) or an annuity plan described in section 403(a), of a domestic parent corporation, an individual who is a citizen or resident of the United States and who is an employee of a domestic subsidiary (within the meaning of paragraph (2)) of such domestic parent corporation shall be treated as an employee of such domestic parent corporation, if—
Amended 1983, 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 491(d)(16), substituted “or an annuity plan described in section 403(a)” for “, an annuity plan described in section 403(a), or a bond purchase plan described in section 405(a)”.
- 1983 Pub. L. 98-21 Pub. L. 98–21 inserted “or resident” after “citizen”, and inserted “or residents” after “citizens” in subpar. (A).
(A) the plan of such domestic parent corporation expressly provides for contributions or benefits for individuals who are citizens or residents of the United States and who are employees of its domestic subsidiaries; and
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(B) contributions under a funded plan of deferred compensation (whether or not a plan described in section 401(a) or 403(a)) are not provided by any other person with respect to the remuneration paid to such individual by the domestic subsidiary.
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 491(d)(17), substituted “or 403(a)” for “, 403(a), or 405(a)”.
(2) Definitions For purposes of this section—
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(A) Domestic subsidiary A corporation shall be treated as a domestic subsidiary for any taxable year only if—
(i) such corporation is a domestic corporation 80 percent or more of the outstanding voting stock of which is owned by another domestic corporation;
(ii) 95 percent or more of its gross income for the three-year period immediately preceding the close of its taxable year which ends on or before the close of the taxable year of such other domestic corporation (or for such part of such period during which the corporation was in existence), was derived from sources without the United States; and
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(iii) 90 percent or more of its gross income for such period (or such part) was derived from the active conduct of a trade or business.
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If for the period (or part thereof) referred to in clauses (ii) and (iii) such corporation has no gross income, the provisions of clauses (ii) and (iii) shall be treated as satisfied if it is reasonable to anticipate that, with respect to the first taxable year thereafter for which such corporation has gross income, the provisions of such clauses will be satisfied.
(B) Domestic parent corporation The domestic parent corporation of any domestic subsidiary is the domestic corporation which owns 80 percent or more of the outstanding voting stock of such domestic subsidiary.
(b) Special rules for application of section 401(a)
(1) Nondiscrimination requirements For purposes of applying section 401(a)(4) and section 410(b) with respect to an individual who is treated as an employee of a domestic parent corporation under subsection (a)—
Amended 1974, 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1112(d)(3), struck out “(without regard to paragraph (1)(A) thereof)” after “section 410(b)” in introductory text.
- 1974 Pub. L. 93-406 Pub. L. 93–406, § 1016(a)(5), substituted “section 401(a)(4) and section 410(b) (without regard to paragraph (1)(A) thereof)” for “paragraphs (3)(B) and (4) of section 401(a)”.
(A) if such individual is a highly compensated employee (within the meaning of section 414(q)), he shall be treated as having such capacity with respect to such domestic parent corporation; and
Amended 1986, 1989
- 1989 Pub. L. 101-239 Pub. L. 101–239, § 7831(f), made technical correction to Pub. L. 99–514, § 1114(b)(9)(B), see 1986 Amendment note below.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1114(b)(9)(B), as amended by Pub. L. 101–239, § 7831(f), substituted “a highly compensated employee (within the meaning of section 414(q))” for “an officer, shareholder, or person whose principal duties consist in supervising the work of other employees of a domestic subsidiary”.
(B) the determination of whether such individual is a highly compensated employee (as so defined) shall be made by treating such individual’s total compensation (determined with the application of paragraph (2) of this subsection) as compensation paid by such domestic parent corporation and by determining such individual’s status with regard to such domestic parent corporation.
Amended 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1114(b)(9)(C), inserted “(as so defined)” after “employee”.
(2) Determination of compensation For purposes of applying paragraph (5) of section 401(a) with respect to an individual who is treated as an employee of a domestic parent corporation under subsection (a), the total compensation of such individual shall be the remuneration paid to such individual by the domestic subsidiary which would constitute his total compensation if his services had been performed for such domestic parent corporation, and the basic or regular rate of compensation of such individual shall be determined under regulations prescribed by the Secretary.
Amended 1976
- 1976 Pub. L. 94-455 Pub. L. 94–455 struck out “or his delegate” after “Secretary”.
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[(c) Repealed. Pub. L. 104–188, title I, § 1401(b)(8), Aug. 20, 1996, 110 Stat. 1789]
Amended 1969, 1974, 1988, 1989, 1992, 1996
- 1996 Pub. L. 104-188 Pub. L. 104–188, § 1401(b)(8), struck out subsec. (c) which related to treatment of termination of status as deemed employee.
- 1992 Pub. L. 102-318 Pub. L. 102–318 substituted “402(d)” for “402(e)”.
- 1989 Pub. L. 101-239 Pub. L. 101–239, § 7811(g)(3), substituted “purposes of limitation” for “purposes limitation” in heading.
- 1988 Pub. L. 100-647 Pub. L. 100–647, § 1011A(b)(16), struck out “of capital gain provisions and” after “service for purposes” in heading and substituted “applying section 402(e)” for “applying subsections (a)(2) and (e) of section 402, and section 403(a)(2)” in text.
- 1974 Pub. L. 93-406 Pub. L. 93–406, § 2005(c)(13), substituted “subsections (a)(2) and (e) of section 402” for “section 72(n), section 402(a)(2)”.
- 1969 Pub. L. 91-172 Pub. L. 91–172 substituted “provisions and limitation of tax” for “provisions” in heading, and substituted “section 72(n), section 402(a)(2),” for “section 402(a)(2)” in text.
(d) Deductibility of contributions For purposes of applying section 404 with respect to contributions made to or under a pension, profit-sharing, stock bonus, or annuity plan by a domestic parent corporation, or by another corporation which is entitled to deduct its contributions under section 404(a)(3)(B), on behalf of an individual who is treated as an employee of such domestic corporation under subsection (a)—
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 491(d)(18)(A), (B), substituted in introductory provision “section 404” for “sections 404 and 405(a)”, and “or annuity” for “annuity, or bond purchase”.
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(1) except as provided in paragraph (2), no deduction shall be allowed to such domestic parent corporation or to any other corporation which is entitled to deduct its contributions under such sections,
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(2) there shall be allowed as a deduction to the domestic subsidiary of which such individual is an employee an amount equal to the amount which (but for paragraph (1)) would be deductible under section 404 by the domestic parent corporation if he were an employee of the domestic parent corporation, and
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 491(d)(18)(C), struck out “(or section 405(c))” after “section 404”.
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(3) any reference to compensation shall be considered to be a reference to the total compensation of such individual (determined with the application of subsection (b)(2)).
Any amount deductible by a domestic subsidiary under this subsection shall be deductible for its taxable year with or within which the taxable year of such domestic parent corporation ends.
(e) Treatment as employee under related provisions An individual who is treated as an employee of a domestic parent corporation under subsection (a) shall also be treated as an employee of such domestic parent corporation, with respect to the plan described in subsection (a)(1)(A), for purposes of applying the following provisions of this title:
Amended 1986, 1988, 1996
- 1996 Pub. L. 104-188 Pub. L. 104–188, § 1402(b)(2), redesignated par. (3) as (2) and struck out former par. (2) which read as follows: “Section 101(b) (relating to employees’ death benefits).”
- 1988 Pub. L. 100-647 Pub. L. 100–647, § 1011A(b)(1)(C), redesignated pars. (2) to (4) as (1) to (3), respectively, and struck out former par. (1) which read as follows: “Section 72(d) (relating to employees’ annuities).”
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1852(e)(2)(D), struck out par. (5) which read as follows: “Section 2517 (relating to certain annuities under qualified plans).”
(1) Section 72(f) (relating to special rules for computing employees’ contributions).
(2) Section 2039 (relating to annuities).
Amended 1996
- 1996 Pub. L. 104-188 Pub. L. 104–188, § 1402(b)(2), redesignated par. (3) as (2) and struck out former par. (2) which read as follows: “Section 101(b) (relating to employees’ death benefits).”